Preventing a foreclosure is like fighting an illness: The earlier you start the greater your chance of success.
If you are falling behind on you mortgage payments, your lender generally will continue to send you statements indicating that you are late, showing the balance, and trusting that you will see the urgency of the situation and get caught up. This is the ideal time to act, before a default is recorded by the lender. Prior to foreclosure, your credit may still be good enough to refinance using a conventional mortgage option, and it is advisable to take whatever steps necessary to reduce the reuired minimum payment as much as possible, pay off other debts, and generally make it easier to pay your mortgage.
A sale-leaseback option is a program that should be explored only after all other alternatives have been exhausted. Contact a mortgage professional for a referral to reputable company.
If you wait until you are 90, 120 or more days past due, you will be judged to be in foreclosure by most lenders offering refinance options, evenif a default has not been recorded by your current lender. This limits your ability to refinance dramatically, and each of those missed mortgage payments takes a huge bite out of your credit score. But for many, it's still not too late.
Even if your credit score is below 500, or you have a received a Notice of Default (often referred to as an NOD) or lis penden, you may still be able to refinance. These foreclosure bailout refinances are designed only for special situations, and have high rates (10%+), but they are meant only for short term relief, allowing you to save your home from foreclosure and get your credit back on track to refinance again in a year or two. You will need equity in your property, usually 30 to 40% minimum, in order to obtain one of these loans.
If you have a second mortgage, you can speak with the lender to determine if it can be resubordinated so it does not have to be refinanced, leaving only the first mortgage to be used for determining the equity in the home.
For example, if you have a home worth $500,000, you may have:
1. a 1st Mortgage for $250,000
2. a 2nd Mortgage for $150,000
If you had to refinanec both mortgages in a foreclosure refinance, you would not qualify, because the total of those two loans is $400,000 and the property value is $500,000, leaving you: $500K Minus $400K = $100K in equity, or 20%. This is not enough equity to qualify for these programs.
If you can resubordinate the 2nd mortgage, meaning that the lender will allow you to refinance the first mortgage and keep the existing second mortgage, then you would have $500K Minus $250K = $250K in equity, or 50%, more than enough to qualify.
When you refianance your property that is in distress you should view this as step one of a two step process back to an affordable mortage payment. Expect a high interest payment on this type of mortgage because of the risk factor. Once you have 12 months of on time new mortgage payments, you can then refinance into a low rate long term mortgage.
There are many companies out there that "prey" upon consumers who are down on their luck and whose homes are in foreclosure. Be very weary of these companies. They will call you, email you, air-mail you, or they may even stop by your home in person offering you what seems to be a tremendous opportunity to help you save your home. Some may offer to take title to your home and rent the home back to you until you are back on your feet again and have re-established your credit, some will offer to refinance your home, and others will even offer to provide you with a loan themselves (usually the terms of these loans will be downright awful). Therefore, be weary of what you are doing before you end up making a mistake that may save your home for a couple of extra months but put you in even a worse situation down the road.
